Daily Blast June 10, 2016

Yesterday, the California Supreme Court issued a decision in Nickerson v. Stonebridge Life Insurance Co. (June 9, 2016, S213873) __ Cal.4th __, analyzing whether Brandt attorney fees awarded postverdict can be considered in determining whether a punitive damages award is unconstitutionally excessive.  (Slip opn., p. 2; see Brandt v. Superior Court (1985) 37 Cal.3d 813, 817.) The court held that postverdict Brandt fees may be used to calculate the proper punitive to compensatory damages ratio. (Slip opn., p. 2.)

The plaintiff, a paraplegic, suffered a severe leg injury. Due to complications from his injury the plaintiff was hospitalized for a total of 109 days. (Slip opn., p. 3.) The plaintiff sought benefits from defendant, his insurance provider, under a policy that promised to pay $350 per day of hospitalization for “necessary care and treatment of a covered injury.” (Ibid.) When the insurance company paid for only 18 days of hospitalization, plaintiff sued alleging breach of the insurance contract and breach of covenant of good faith and fair dealing. (Ibid.) The trial court granted a directed verdict on the contract cause of action and awarded plaintiff $31,500. (Id. at p. 4.) The jury returned a special verdict for plaintiff on his bad faith cause of action and awarded $35,000 in general damages and $19 million in punitive damages. (Ibid.) Subsequently, pursuant to the parties’ stipulation, the court awarded the plaintiff $12,500 in Brandt fees. (Ibid.)

The insurance company moved for new trial, arguing that the punitive damages award was constitutionally excessive. (Slip opn., p. 4.) The trial court agreed, reducing the punitive damages award to $350,000. (Id. at pp. 4-5.) The court reasoned that under State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408, 425, “a punitive-compensatory ratio exceeding single digits will ordinarily exceed constitutional bounds.” (Slip opn., pp. 4-5.) This 10-1 ratio considered only the $35,000 jury award and did not include the $12,500 in Brandt fees. (Slip opn., p. 5.)

The plaintiff appealed, arguing that the award should have taken the Brandt fees into account. (Slip opn., p. 5.) The Court of Appeal affirmed. The court held that Brandt fees may be considered in determining the proper punitive damages ratio when the fees are awarded by the jury, but not when awarded by the court after the jury’s verdict. (Slip opn., pp. 5-6.) The Supreme Court granted review on the sole question of whether the Brandt fees could be included in calculating a constitutionally reasonable punitive damages award. (Id. at p. 6.)

The Supreme Court reversed, holding that postverdict Brandt fees could be considered to determine the constitutionality of a jury’s punitive damages award under the second prong of BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 575 (“Gore”). (Slip opn., p. 15.)  The second prong for determining whether a punitive damages award is grossly excessive is “the disparity between the actual harm or potential harm suffered . . . and the punitive damages award[ed].”  (Id. at p. 7, quoting Gore, supra, 517 U.S. at p. 575.) The court rejected the insurance company’s argument that review of a punitive damages award is limited to deciding whether the jury’s award was “tainted by irrational or arbitrary jury decisionmaking.” (Id. at p. 10.) It reasoned that “ecause the Gore guideposts are designed to govern postverdict judicial review of the amount of a jury’s award, not the adequacy of the jury’s deliberative process, there is no apparent reason why a court applying the second guidepost may not consider a postverdict compensatory damages award in its constitutional calculus.” (Id. at p. 13, italics added.) The court acknowledged, “to exclude the [Brandt] fees from consideration would mean overlooking a substantial and mutually acknowledged component of the insured’s harm.” (Id. at p. 15.)